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Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
---|---|---|---|---|---|
Team Internet Group Plc | LSE:TIG | London | Ordinary Share | GB00BCCW4X83 | ORD 0.1P |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
1.40 | 0.76% | 185.20 | 184.40 | 185.60 | 186.60 | 183.20 | 186.60 | 95,595 | 16:29:51 |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
---|---|---|---|---|---|
Business Consulting Svcs,nec | 836.9M | 24.3M | 0.0894 | 20.72 | 499.46M |
RNS Number:3915S Innovation Group PLC 24 November 2003 Embargoed until 0700 24 November 2003 THE INNOVATION GROUP PLC PRELIMINARY RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 2003 The Innovation Group (TiG), delivering solutions that improve profitability and customer service in the insurance and associated industries, today announces its audited preliminary results for the twelve months ended 30 September 2003. Highlights for the twelve months ended 30 September 2003: * Adjusted profit* before tax of #3.3m (2002: #10.0m) * Loss before tax of #24.1m (2002: loss of #391.1m) after amortisation charge of #17.2m, exceptional costs of #5.2m, write down of fixed asset investments of #5.9m, profit on disposal of operations of #1.6m and loss on disposal of fixed assets of #0.7m * Total revenue of #58.5m (2002: #100.1m). Specialised Business Process Outsourcing revenue (SBPO) of #24.4m (2002: #21.2m). Technology Solutions Division (TSD) revenue of #34.1m (2002: #78.9m) * Successful completion of rights issue in March raising approximately #9m (net of expenses) * Hassan Sadiq commenced as new Chief Executive in March 2003 * Significant cost base reduction (total costs excluding one off items and amortisation for Q4 2003 were #12.1m compared to #20.6m in Q4 2002) * Became cash flow positive in Q4 (operating inflow of #2.8m) after three quarters of continually reduced outflows * Major contract win secured in Q4 (announced 1 October 2003) * Adjusted profit is the loss before tax adding back the items in second bullet point above. It is analysed in financial highlights on page 9. Commenting on the results, Hassan Sadiq, Chief Executive, said: "This has been a year of evolution for The Innovation Group. We have reshaped our Board, bolstered our management team and tailored our products to align them more closely with the needs of our clients. The outlook for next year is one of cautious optimism." The analyst presentation slides will be available on our website: www.tigplc.com - ends - Enquiries: The Innovation Group plc 01489 898300 Hassan Sadiq, Chief Executive Officer Paul Smolinski, Group Finance Director KBC Peel Hunt 020 7418 8900 Simon Hayes / Jonathan Marren Weber Shandwick Square Mile 020 7067 0700 Sara Musgrave / Katie Hunt Notes to Editors The Innovation Group delivers innovative technology and process improvement solutions to insurance and associated industries that enable clients to increase profit and improve the customer experience. To cater to the needs of each individual client, and to maximise impact and return on investment, TiG's solutions comprise of two divisions: Technology Solutions Division (TSD) and Specialised Business Process Outsourcing (SBPO). The Group has provided services for leading blue chip companies around the globe including: ACG, ACSC, Alliance, Aviva, Axa, BMW, Chubb, Direct Line, Ford Motor Company, Jaguar, RSA, Yasuda, and Zurich. Market leaders recognise that in order to improve profit margins they must reduce the total cost of claims. Current industry averages show that average European non-life expenditures are around 105% of premiums collected (combined ratio), with nearly 80% of this expense being claims related (totalling more than #20 billion a year in the UK alone)**. TiG's claims technology enables insurers to decrease claims cost by around 5 to 20% and improve customer experience. ** Source: The Economist Intelligence Unit, February 2003. Chairman's Statement Introduction The Innovation Group delivers innovative technology and process improvement solutions to insurance and associated industries that enable clients to increase profit and improve the customer experience. To cater to the needs of each individual client, and to maximise impact and return on investment, TiG's solutions comprise two divisions: Technology Solutions Division (TSD) and Specialised Business Process Outsourcing (SBPO). The Year in Review This year has seen a period of transition and recovery for the Group. Faced with a challenging governance, economic and business climate, we reshaped our Board and management team and repositioned our products and services to align more closely with the needs of our clients and partners. Production delivery of our new policy and claims systems, plus a significant policy system win in North America provide solid evidence of our progress. Our continued strategy of focusing on core revenue lines whilst maintaining costs at an appropriate level means that the Group has been able to deliver four consecutive quarters of adjusted profit*. Financial Results Adjusted profit* before tax, was #3.3m for the year ended 30 September 2003 (2002: #10.0m) and revenue for the year to 30 September 2003 was #58.5m (2002: #100.1m). Rights Issue In March 2003, the Group concluded a rights issue which raised approximately #9m net of expenses. The rights issue strengthened the balance sheet and gave clients, partners and prospects the confidence they needed to consider TiG as the solution provider for their mission critical needs. The Board In February 2003, John Birkmire, Gordon Crawford and Clive Vlotman left the Board. In March 2003, Hassan Sadiq stepped up to become Chief Executive of TiG (previously Chief Operating Officer) and Rob Terry moved from being Chief Executive to Vice-Chairman. In September 2003 Rob Terry resigned from the Group. We stated that it was our intention to recruit fully independent, non-executive directors who would bring additional skills and experience, and in line with those criteria we were pleased to appoint Chris Banks and David Thorpe to the Board in the second half of the year - chairing the audit and remuneration committees respectively. Chris and David bring their considerable knowledge and expertise from CMG and EDS and we thank them both for their contribution thus far. Ed Ossie, Steve Scott and Paul Smolinski remain as executive directors of TiG, and I continue as non-executive chairman of the Board and the nomination committee. Employees I would like to thank everyone for their outstanding contribution to the business this year and thank them for their dedication to our clients. This has been a period of challenge and achievement where our teams throughout the world have demonstrated their experience and professionalism. We continue to attract and retain some of the best people in the industry and we recognise them as the foundation of our future success. Strategy Insurance companies can no longer rely on investment income to support their profit margins. This means that they have to improve margins in their core business. TiG believes that technology has a major role to play in this improvement, and continues to invest in research and development, implementation skills and specialised business process outsourcing infrastructure to deliver these solutions. Outlook We expect the market to remain challenging but we are confident that we now have the right foundation in place. We will build upon our proven solutions, blue chip client base and key partnerships with leading companies such as IBM. The Board looks forward to the next financial year with cautious optimism - anticipating a return to turnover growth and improved profitability in our core businesses. We would like to thank our shareholders for their invaluable support. Geoff Squire, OBE Chairman * Defined under financial highlights Chief Executive's Review I am pleased to report that TiG delivered an adjusted profit* of #3.3 million for the financial year, became cash flow positive in the fourth quarter and made substantial progress in further developing the business for future sustainable growth. At an operational level, we structured the business into two main divisions - Technology Solutions Division (TSD) and Specialised Business Process Outsourcing (SBPO), realigned the Group to focus on core competencies and strengthened our quality partnerships with leading companies such as IBM. This, along with better integration of our acquired businesses, enabled us to substantially reduce our costs without affecting our ability to service clients. The Group has provided services for leading blue chip companies around the globe including: ACG, ACSC, Alliance, Aviva, Axa, BMW, Chubb, Direct Line, Ford Motor Company, Jaguar, RSA, Yasuda, and Zurich. During the last two years, the economic downturn has markedly changed the purchasing dynamics of the insurance industry. Whilst it negatively impacted our technology business through lower Initial Licence Fee (ILF) and systems integration revenues, it positively affected our SBPO business as insurers sought to outsource functions in a bid to improve their bottom line. Current industry averages show that average European non-life expenditures are around 105% of premiums collected (the "combined ratio", an industry measure of underwriting profitability)**, with nearly 80% of this expense being claims related (totalling more than #20 billion a year in the UK alone). Market leaders recognise that in order to improve profit margins they must reduce the total cost of claims. Our claims technology enables insurers to decrease claims cost by around 5 to 20% and improve customer experience. * Defined under financial highlights ** Source: The Economist Intelligence Unit, February 2003. Specialised Business Process Outsourcing (SBPO) Our SBPO division, branded as TiG eQuals, focuses on managing business functions for the insurance and associated industries. It provides outsourced services such as accident management, incident estimating, assessment services and warranty administration, charged on a transactional basis. During 2003, the SBPO business grew as insurers sought to obtain solutions with a fast ROI. This has resulted in nine new clients being signed globally, as well as an increase in pipelines in all regions. Geographically, 43% of our SBPO revenue of #24.4m was earned in the UK, 47% in South Africa, 5% in Germany, 2% in France (sold during the year to Groupama) and 3% in Australia. All geographical regions are expected to grow in 2004. In South Africa, our business is the market leader for many of the services it provides. South Africa also affords TiG's global clients an attractive offshore alternative through its competitive cost structure, modern infrastructure and English-speaking population base. Our UK SBPO operation added some new clients in 2003, but we are expecting its growth to be flat for the first half of 2004 due to one client taking its business in-house. Conversely, the German and Australian operations are both experiencing significant growth and both realised profitability for the first time during the year. During the year, we have continued to invest in implementing our own technology within our SBPO business offerings. The use of our own technology within our SBPO offering gives us a distinct competitive advantage by further helping them to reduce the cost of claims. This procedure is being led from the UK and will roll out to all other regions in due course. Technology Solutions Division (TSD) TSD provides software and services to develop, install, integrate and maintain insurance systems for policy and claims related functions. After a difficult first half, we began to see signs of recovery in the second half as our sales pipeline began to grow. Recently, we gained two commitments from leading US insurers for evaluation licences for our new policy offering. The first converted into a full licence in Q4 and will be implemented in conjunction with IBM (announced 1 October 2003). The second was still under evaluation at the close of the year. Beyond this we have seen an increase in enquiry levels from insurers and have been responding to a higher level of RFP's. We are also continuing to work on further opportunities with IBM. Geographically, 53% of our technology revenue of #34.1m was earned in North America, 37% in the UK and Europe, and 10% in Asia Pacific. We expect North America and the UK to be the prime growth areas in 2004. Our total recurring revenue in technology solutions for the year was #22.6m. This included revenue of #2.4m from a US government contract that was not renewed. Its effect on Group profitability will be minimal, as costs have already been reduced accordingly. Our implementation teams successfully delivered major projects globally, including our claims product to two blue chip insurance companies. We expect implementation revenue to increase in Q1 2004 as we re-deploy our people from completed fixed price projects to new projects. Investing for the Future (R & D) Our claims technology and SBPO offerings enable insurers to decrease claims costs and improve customer experience. Our policy platform enables insurers to further reduce costs and time to market, while improving their ability to sell through multiple channels. The collective result of our offering is a lower combined ratio. TiG believes that technology has a major role to play in the future profitability of the insurance industry and continues to make substantial investment into R&D in the technology business as well as process solutions for our SBPO business. To support our core offering we also launched the "TIG Conversion Toolkit" which rapidly enables data conversion from old systems to new. This led to a new contract in Q4 and interest levels were increasing as we closed the year. Strategic Update Our focus in 2004 is to increase our profitability, generate cash from our existing operations, and to bring further focus to our core businesses. This strategy will pave the way for sustainable organic growth on a medium term basis. We retain our focus on insurance and associated industries. The synergies between the two divisions provide TiG with a strong competitive advantage as customers benefit from flexible offerings that adapt to changing markets. We remain committed to extending our capabilities throughout the world. Outlook As pipelines in both our technology and SBPO businesses have grown and general trading conditions continue to improve, we are cautiously optimistic about 2004. Whilst the market remains difficult, recent months have shown positive indications of future improvements. Our technology business successes in the final quarter give credence to insurance market analyst predictions of 'an increasing demand for modern policy and claims solutions'. Insurance industry analysts also predict a continuing increase in the use of business process outsourcing. We believe that technology has a major role to play in the future profitability of the insurance industry and, to that end, continue to focus on providing leading edge solutions that enable insurers to reduce their costs and improve customer relations. Overall, there is significant scope for our business to grow further in the years to come. In closing, I want to thank our shareholders for supporting us during the year and our employees in progressing the Group in the right direction. Hassan Sadiq Chief Executive Officer Finance Director's Review Results Revenue for the year to 30 September 2003 was #58.5m (2002: #100.1m); SPBO revenue for year to 30 September 2003 was #24.4m (2002: #21.2m); Technology Solutions revenue for year to 30 September 2003 was #34.1m (2002: #78.9m). Revenue in the first half of the year was #31.2m and was #27.3m in the second half of the year. Within this, SBPO turnover grew from #11.5m (including #0.5m from a business subsequently sold) in the first half to #12.9m in the second half of the year and TSD reduced accordingly as long-term implementations were successfully completed. EBITDA for the year was #6.5m (2002: #15.1m). FRS3 loss before tax was #24.1m (2002: FRS3 loss of #391.1m). On an adjusted basis profit was #3.3m (2002: #10.0m) after excluding an amortisation charge of #17.2m, exceptional costs of #5.2m, amounts written off investments of #5.9m, profit on disposal of operations of #1.6m and loss on disposal of fixed assets of #0.7m. Adjusted EPS was 0.79p (2002: 2.46p), basic loss per share was 7.67p (2002: loss per share of 173.78p). As at 30 September 2003 there were approximately 414 million shares in issue. The Group tax charge was #0.7m. The principal reason for there being a tax charge despite the FRS3 loss is due to profits earned in certain countries which cannot be set off against losses arising in other countries. The effective tax rate is lower than the expected rate of 30% due mainly to the utilisation of tax losses brought forward for which no deferred tax asset had previously been recognised. One-off items Exceptional charges of #5.2m (2002: #374.5m) were incurred in the fourth quarter of 2003. #0.4m relates to office closure costs in North America; #3.1m relates to fixed asset write-downs; #0.5m relates to contractual settlements and #1.2m relates to people costs (including the #0.5m balance of the contractual entitlement due to R Terry following his resignation as a director). Fixed asset investments were written down by #5.9m after a review of "value in use" and market conditions. Additionally there was a #0.7m loss on disposal of fixed assets and a #1.6m profit on the sale of our SBPO operation in France. Costs The cost base has decreased significantly in 2003 through a combination of focusing on our core business and reducing staff costs and other administrative expenses. The average headcount for the Group has fallen by 13%, although within this there has been an increase in our SBPO operation in South Africa offset by a reduction primarily in our technology solutions business. Total costs excluding one off items and amortisation for Q4 2003 were #12.1m compared to #20.6m in Q4 2002. Additionally, during the year several offices were closed including the former Huon headquarters in London, our Leatherhead office in the UK, and an office in Hartford, US. In addition, we moved to more cost effective offices in Danbury and Kansas in the US. Cash flow and financing Over the year our net cash position has improved by #2.1m. The Group undertook a rights issue in March that generated approximately #9.0m net of expenses. This strengthened our balance sheet and has given our stakeholders increased confidence in the Group. We also achieved a cash inflow of #2.2m through the disposal of our SBPO operation in France and realised #3.3m through the sale of one of our Whiteley offices. We repaid #6.2m of loan notes during the year and repaid #6m of mortgage and other borrowings. At the operating level, TiG had a net cash outflow of #5.2m in the year of which #3.7m arose from exceptional costs, compared to an outflow of #8.1m in the previous year (where there was a outflow of #15.9m relating to exceptional items). Putting the Group in a position where it generates cash on a quarterly basis has been a priority, with tightly controlled costs and optimum payment terms from clients being areas of particular attention. This focus has resulted in a continual quarter on quarter improvement during the year, with a Q4 inflow of #2.8m following three quarters of reducing outflows. Our year end cash and short term investment position is #12.9m and cash management remains a key focus. Some #2.7m of the cash is restricted by exchange controls in South Africa, #0.5m is held in an escrow account as a warranty, and there is #1.3m held in respect of loan notes repayable within 12 months. The balance sheet also includes #3.3m of deferred consideration in respect of acquisitions that is to be settled by October 2004, including the #1m settled by issue of shares in October 2003, with #2m of the remaining balance capable, at TiG's option, of also being settled in shares. Foreign exchange Approximately #34m (almost 60%) of the Group's turnover is generated outside the UK and denominated in foreign currencies. The Group, therefore, has an exposure to translation risk when the accounts of overseas subsidiaries are converted into sterling. The Group does not hedge this translation risk. During the year the most important currencies for the Group were the US$ and the South African Rand and the average exchange rates used to convert results into sterling were US$ 1.61: #1 (2002: US$1.46:#1) and SA Rand 12.96: #1 (2002: SA Rand 15.49:#1). Summary Following a challenging year, the priorities of the coming year will be to focus on the growth and profitability of our core business. Higher core revenues, optimised costs and generation of cash from operations will be our goal. We have already made significant improvements in terms of the Group's governance and internal controls and will continue to improve in line with the guidance of the revised Combined Code. Paul Smolinski Group Finance Director The Innovation Group plc Financial Highlights Note 2003 2002 #'000 #'000 TURNOVER 58,514 100,071 ADJUSTED PROFIT BEFORE TAX a 3,331 10,028 LOSS BEFORE TAX (24,088) (391,114) ADJUSTED EARNINGS PER SHARE (pence) 6 0.79 2.46 BASIC LOSS PER SHARE (pence) 6 (7.67) (173.78) DIVIDEND PER SHARE (pence) - 0.6 Note: a Adjusted profit before tax is calculated as: 2003 2002 #'000 #'000 FRS 3 loss before tax (24,088) (391,114) Add back: Amortisation 17,181 26,644 Exceptional items 3 5,247 24,498 Goodwill impairment - 350,000 Profit on disposal of continuing operations 4 (1,638) - Loss on sale of fixed assets in continuing operations 3 747 - Amounts written off investments 3 5,882 - --------------------- 3,331 10,028 ===================== References to adjusted profit and earnings per share reflect the Directors' view that these are important measures for their own, and shareholders', assessment of the Group's underlying performance. The Innovation Group plc Consolidated Profit and Loss Account Year ended 30 September 2003 2003 2002 Note #'000 #'000 TURNOVER - continuing 2 58,514 100,071 Cost of sales (10,597) (14,687) ---------- ---------- Gross profit 47,917 85,384 Administrative expenses - amortisation (17,181) (26,644) - exceptional items 3 (5,247) (374,498) - other (44,375) (75,767) ---------- ---------- (66,803) (476,909) ---------- ---------- OPERATING LOSS - continuing (18,886) (391,525) Share of operating profit of associate undertaking 71 - Profit on disposal of continuing operations 4 1,638 - Loss on sale of fixed assets in continuing operations 3 (747) - Amounts written off investments 3 (5,882) - Net interest (282) 411 ---------- ---------- LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION (24,088) (391,114) LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION (24,088) (391,114) Amortisation 17,181 26,644 Exceptional items 3 5,247 374,498 Profit on disposal of continuing operations 4 (1,638) - Loss on sale of fixed assets in continuing operations 3 747 - Amounts written off investments 3 5,882 - ---------- ---------- ADJUSTED PROFIT 3,331 10,028 ========== ========== Tax on loss on ordinary activities 5 (687) - ---------- ---------- LOSS ON ORDINARY ACTIVITIES AFTER TAXATION (24,775) (391,114) Equity minority interests (76) (85) ---------- ---------- LOSS FOR THE YEAR (24,851) (391,199) Dividends - (1,255) ---------- ---------- RETAINED LOSS FOR THE YEAR (24,851) (392,454) ========== ========== Adjusted earnings per ordinary share (pence) 6 0.79 2.46 Basic loss per ordinary share (pence) 6 (7.67) (173.78) Diluted loss per ordinary share (pence) 6 (7.67) (173.78) The Innovation Group plc Consolidated statement of total recognised gains and losses Year ended 30 September 2003 2003 2002 #'000 #'000 Loss for the financial year (24,851) (391,199) Currency translation differences (4,010) (2,580) ---------- ---------- Total recognised gains and losses relating to the year (28,861) (393,779) ========== ========== Reconciliation of Movement in Shareholders' Funds Year ended 30 September 2003 2003 2002 #'000 #'000 Loss for the financial year (24,851) (391,199) Dividends - (1,255) ---------- ---------- (24,851) (392,454) Currency translation differences (4,010) (2,580) Issue of shares 20,249 44,381 Shares to be issued (12,264) 2,000 ---------- ---------- Net reduction to shareholders' funds (20,876) (348,653) Opening shareholders' funds as previously reported 57,399 406,052 ---------- ---------- Closing shareholders' funds 36,523 57,399 ========== ========== The Innovation Group plc Consolidated balance sheet As at 30 September 2003 2003 2002 Note #'000 #'000 FIXED ASSETS Intangible assets 35,357 53,987 Tangible assets 12,627 22,441 Investments 1,809 5,034 ---------- ---------- 49,793 81,462 CURRENT ASSETS Stocks 235 131 Debtors 7 11,038 15,492 Investments 1,743 11,060 Cash at bank and in hand 11,161 9,149 ---------- ---------- 24,177 35,832 CREDITORS: amounts falling due within one year (17,701) (25,823) ---------- ---------- NET CURRENT ASSETS 6,476 10,009 ---------- ---------- TOTAL ASSETS LESS CURRENT LIABILITIES 56,269 91,471 CREDITORS: amounts falling due after more than one year Convertible loan notes (2,147) (2,040) Other creditors (5,677) (13,021) ---------- ---------- (7,824) (15,061) PROVISIONS FOR LIABILITIES AND CHARGES (1,786) (3,673) ACCRUALS AND DEFERRED INCOME (10,073) (15,132) EQUITY MINORITY INTERESTS (63) (206) ---------- ---------- NET ASSETS 36,523 57,399 ========== ========== CAPITAL AND RESERVES Called up share capital 8,281 3,952 Shares to be issued 1,736 14,000 Share premium account 474,893 458,973 Profit and loss account (448,387) (419,526) ---------- ---------- EQUITY SHAREHOLDERS' FUNDS 36,523 57,399 ========== ========== The Innovation Group plc Consolidated cash flow statement Year ended 30 September 2003 2003 2002 Note #'000 #'000 Net cash outflow from operating activities A (5,230) (8,086) Returns on investments and servicing of finance Interest received 900 2,130 Interest paid (780) (1,210) Interest element of finance lease rental payments (223) (223) ---------- ---------- Net cash (outflow)/inflow from returns on investments and servicing of finance (103) 697 Taxation Tax paid (641) (2,014) Capital expenditure and financial investment Purchase of tangible fixed assets (916) (4,251) Purchase of intangible fixed assets - (1,714) Sale of tangible fixed assets 3,536 558 Purchase of fixed asset investments (1,658) (1,921) Loans (400) - ---------- ---------- 562 (7,328) Acquisitions and disposals Payments to acquire subsidiary undertakings (190) (16,014) Cash acquired with subsidiaries - 1,056 Sale of subsidiary undertakings 2,207 - Net cash disposed of with subsidiary (88) - Net cash transferred from subsidiary to associate (304) - ---------- ---------- 1,625 (14,958) Equity dividends paid - (5,625) Management of liquid resources Net sale of current asset investments 9,317 51,960 ---------- ---------- Cash inflow before financing 5,530 14,646 Financing Issue of shares 8,970 - Repayment of borrowings (12,149) (20,052) New borrowings - 500 Capital element of finance lease rentals (246) (259) ---------- ---------- Net cash flow from financing (3,425) (19,811) ---------- ---------- Increase/(decrease) in cash less bank overdraft B,C 2,105 (5,165) ========== ========== A. RECONCILIATION OF OPERATING LOSS TO NET CASH OUTFLOW FROM OPERATING ACTIVITIES 2003 2002 #'000 #'000 Operating loss (18,886) (391,525) Exceptional items 5,247 374,498 ---------- ---------- Operating loss before exceptional items (13,639) (17,027) Depreciation 2,991 5,477 Amortisation of intangible fixed assets 17,181 26,644 Profit on disposal of fixed assets (147) (131) (Increase)/decrease in stocks (113) 55 Decrease in debtors 4,158 15,935 Decrease in creditors (11,926) (23,138) ---------- ---------- (1,495) 7,815 Cash outflow arising from exceptional costs (3,735) (13,140) Acquisition related outflows* - (2,761) ---------- ---------- Net cash outflow from operating activities (5,230) (8,086) ========== ========== * Acquisition related outflows during the year ended 30 September 2002 related to payments made by the Company in respect of liabilities which crystallised as a consequence of the acquisitions of MTW and Huon and creditor payments associated with the pre-acquisition activities of the Cosy Group. B. ANALYSIS OF CHANGES IN NET FUNDS At Other At 1 October non-cash 30 September 2002 Cash flow changes 2003 #'000 #'000 #'000 #'000 Cash at bank and in hand 9,149 2,012 - 11,161 Bank overdraft (95) 93 - (2) ---------------------------------------------------- 9,054 2,105 - 11,159 Debt due beyond a year (12,242) - 5,824 (6,418) Debt due within a year (8,166) 12,149 (5,931) (1,948) Finance leases and hire purchase contracts (961) 246 - (715) Current asset investments 11,060 (9,317) - 1,743 ---------------------------------------------------- Total net (deficit)/funds (1,255) 5,183 (107) 3,821 ==================================================== C. RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS 2003 2002 #'000 #'000 Increase/(decrease) in cash in the period 2,105 (5,165) Cash outflow from decrease in debt and lease financing 12,395 19,811 Cash inflow from decrease in liquid resources (9,317) (51,960) ---------- ---------- Change in net funds resulting from cash flows 5,183 (37,314) Loans, loan notes and finance leases acquired with subsidiaries - (1,508) Foreign exchange (107) (484) ---------- ---------- Movement in net funds/(deficit) in the year 5,076 (39,306) Net (deficit)/funds at start of the year (1,255) 38,051 ---------- ---------- Net funds/(deficit) at end of the year 3,821 (1,255) ========== ========== The Innovation Group plc Notes to the preliminary statements Year ended 30 September 2003 1. BASIS OF PREPARATION The financial information set out above does not constitute the Company's statutory accounts for the years ended 30 September 2003 or 2002, but is derived from those accounts. Statutory accounts for 2002 have been delivered to the Registrar of Companies, and those for 2003 will be delivered following the Company's annual general meeting. The auditors have reported on those accounts; their reports were unqualified and did not contain statements under s237(2) or (3) of the Companies Act 1985. 2. ANALYSIS OF TURNOVER, LOSS BEFORE TAX AND NET ASSETS Turnover can be analysed into the following categories: 2003 2002 #'000 #'000 Technology Solutions Division Initial licence fees 4,916 17,520 Implementation 6,620 29,408 Recurring 22,582 31,901 ---------- ---------- 34,118 78,829 Specialised Business Process Outsourcing ("SBPO") Recurring 24,396 21,242 ---------- ---------- 58,514 100,071 ========== ========== Recurring revenue represents income from contracts that do not relate to discrete projects such as the implementation of a new system. It includes maintenance, source code rental, and in/outsourcing work with customers. Following the restructuring of the group at the end of 2002, the Directors now consider that the Group has two principal activities. These are technology solutions and specialised business process outsourcing. The results for the year ended 30 September 2003 can be analysed as follows. In practice it is not feasible to provide comparative data with sufficient accuracy and so, as permitted by SSAP 25, no comparative information is provided. Technology Solutions SBPO Total #'000 #'000 #'000 Turnover - by origin and destination 34,118 24,396 58,514 ---------- ---------- ---------- EBITDA before R&D, central and exceptional costs 12,249 2,954 15,203 Amortisation and depreciation (11,802) (8,130) (19,932)* Exceptional items (3,120) (2,127) (5,247) ---------- ---------- ---------- (2,673) (7,303) (9,976) ========== ========== R&D (6,512)* Central costs (2,398) ---------- (18,886) Share of operating profit of associate undertaking 71 Profit on disposal of continuing operations - SBPO 1,638 Loss on sale of fixed assets in continuing operations (747) Amounts written off investments (5,882) Net interest (797) 515 (282) ---------- Loss before tax (24,088) ========== * Research and development costs include approximately #240,000 of depreciation. 2. ANALYSIS OF TURNOVER, LOSS BEFORE TAX AND NET ASSETS (continued) The analysis of net assets at 30 September 2003 by division was as follows: #'000 Technology 17,785 SBPO (15,357) Goodwill 34,095 ---------- 36,523 ========== The geographical analysis by location is as set out below: Turnover Loss before taxation Net assets 2003 2002 2003 2002 2003 2002 #'000 #'000 #'000 #'000 #'000 #'000 Europe, Middle East and Africa 36,722 59,227 9,259 (261,970) (55,967) 18,156 Americas 17,420 35,143 3,230 (66,340) 59,473 (21,191) Asia Pacific 4,372 5,701 (238) (1,412) (7,485) (7,792) Goodwill and amortisation - - (17,181) (26,644) 34,095 50,851 Central and R&D - - (8,910) (10,250) 6,407 17,375 Exceptional charge - - (5,247) (24,498) - - Profit on disposal - - 1,628 - - - Loss on sale of fixed assets - - (747) - - - Amounts written off investments - - (5,882) - - - -------- -------- -------- -------- -------- -------- 58,514 100,071 (24,088) (391,114) 36,523 57,399 ======== ======== ======== ======== ======== ======== Due to the geographical spread of certain acquisitions and the centralisation of certain functions, it is not possible to allocate the related central costs over the geographical areas for the above years. Central net assets include other investments and net funds. 3. EXCEPTIONAL ITEMS 2003 2002 #'000 #'000 Office closure costs 408 3,050 Tangible fixed assets impairment 3,065 4,616 Termination payments 1,274 5,804 Redundancy period costs - 9,255 Contractual settlements 500 1,773 ---------- ---------- 5,247 24,498 Goodwill impairment - 350,000 ---------- ---------- 5,247 374,498 ========== ========== Other exceptional items Loss on sale of fixed assets 747 - Amounts written off investments 5,882 - ========== ========== 2003 In the fourth quarter, the Directors reassessed the Group's infrastructure of offices and systems in the light of current market conditions and future prospects. As a consequence, further impairment charges have been made to leasehold improvements and computer systems within tangible fixed assets. Termination payments include #494,000, being the balance of the contractual entitlement due to R Terry following his resignation as a director and amounts paid to individuals who were made redundant in the fourth quarter of the year as part of the reassessment noted above. Contractual settlements represent the balance of funds committed to investments whose carrying value has now been deemed to be impaired. In addition to the above, other exceptional items are noted in the current year as explained below: Loss on sale of fixed assets - on 1 August 2003 the Group disposed of one of its properties, which included an element of fixtures and fittings, at Whiteley for consideration of #3.3m, giving rise to a loss on disposal of #747,000. The proceeds were used to reduce the related mortgage loan. Amounts written off investments - as part of their year end procedures, the directors have reviewed the carrying value of the Group's investments and in particular 'other investments'. Whilst they remain positive towards the long term prospects of these, an impairment charge has been recorded to reflect their concern as to their immediate prospects. 2002 As a response to market conditions, the Group reorganised itself extensively during the year resulting in exceptional costs which included provisions for the closure of a number of satellite UK and US offices and the write down of related fixed assets and severance costs for employees. Redundancy period costs related primarily to salary costs of those individuals made redundant for the consultation period prior to their redundancy where, as a consequence, the Group received no benefit in respect of the individuals' employment during that period. At 30 June 2002, the Group undertook a full impairment review of its acquisitions since flotation in accordance with FRS 11, and their carrying values were written down by #350 million. 4. PROFIT ON DISPOSAL OF CONTINUING OPERATIONS 2003 #'000 Net assets disposed of: Tangible fixed assets 655 Debtors 194 Cash at bank and in hand 88 Creditors (368) ---------- 569 Profit on disposal of continuing operations 1,638 ---------- 2,207 ========== Satisfied by: Cash 2,207 ========== The disposal of the Group's French SBPO business was completed on 29 January 2003. The profit on disposal of #1,638,000 was determined including #nil attributable goodwill. In addition to the above, an amount of Euro400,000 is payable by the purchaser in July 2004 as deferred consideration. This amount has been retained by the purchaser in respect of potential warranty claims and has not been recognised as consideration by the Group. 5. TAX ON LOSS ON ORDINARY ACTIVITIES There is a tax charge for the period of #687,000 (2002: #nil). This charge primarily arises due to profits in overseas jurisdictions, most notably South Africa, which cannot be offset by losses in other jurisdictions. 6. LOSS PER SHARE 2003 2002 p p Diluted loss per share (7.67) (173.78) Adjustments for share options and shares to be issued - - ---------------------- Basic loss per share (7.67) (173.78) Adjustments for exceptional items and amortisation 8.46 176.24 ---------------------- Adjusted earnings per share 0.79 2.46 ====================== 6. LOSS PER SHARE (continued) Earnings per share is calculated as follows: 2003 2002 Adjusted* Basic EPS Average number of shares 323,760,481 225,104,606 Loss for the financial year (#'s) (24,851,000) (391,199,000) ============================== Diluted EPS Average number of shares 323,760,481 225,104,606 Loss for the financial year (#'s) (24,851,000) (391,199,000) =============================== Adjusted earnings per share Average number of shares 323,760,481 225,104,606 Loss for the financial year (#'s) (24,851,000) (391,199,000) Add amortisation (#'s) 17,181,000 26,644,000 Add exceptional items (#'s) 5,247,000 374,498,000 Less profit on disposal of operations (1,638,000) - Add loss on sale of fixed assets 747,000 - Add amounts written off investments 5,882,000 - Less tax credit arising on exceptional items (#'s) - (4,400,000) ----------------------------- Adjusted earnings (#'s) 2,568,000 5,543,000 ============================ * The 2002 average number of shares has been adjusted to reflect the shares issued during the rights issue in March 2003. References to adjusted profit and earnings per share reflect the Directors' view that these are important measures for their own, and shareholders', assessment of the Group's underlying performance. FRS 14 requires presentation of diluted EPS when a company could be called upon to issue shares that would decrease net profit or increase net loss per share. For a loss making company with outstanding share options, net loss per share would only be increased by the exercise of out-of-the-money options. Since it seems inappropriate to assume that option holders would act irrationally, no adjustment has been made to diluted EPS for out-of-the-money share options. 7. WORKING CAPITAL Debtors as at 30 September 2003 comprise trade debtors of #8.5m (30 September 2002: #11.4m), accrued income of #0.5m (30 September 2002: #0.6m), prepayments, deposits and other debtors of #2.0m (30 September 2002: #3.5m). 8. ADDITIONAL COPIES OF THE STATEMENT Copies of this statement are available from The Innovation Group plc, Yarmouth House, 1300 Parkway, Solent Business Park, Whiteley PO15 7AE. This information is provided by RNS The company news service from the London Stock Exchange END FR FEIFUFSDSEFF
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